China stocks fall 6%, extending loss

An investor holding a pair of chopsticks has
his lunch in front of an electronic board at the stock exchange in
Shanghai June 4, 2007. China's main stock index tumbled 8.26 ercent or 330
points on Monday to close at 3670.40, adding to big losses suffered last
week after the government hiked the share trading tax to cool speculation.
[Reuters]

Chinese stocks continued to tumble
on Tuesday morning after Monday's 8.3 percent fall as investors went on a
selling spree.

At the end of Tuesday's morning session, the Shanghai Composite Index lost
5.66 percent to 3,462.52, after hitting an intraday low of 3,404.15.

Many analysts believe that China's equity markets are seriously troubled,
after an extraordinary bull run in which share prices more than tripled in the
last two years.

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Now, there are fears among both government officials and economists that a
severe downturn in stock prices can lead to a further rout that would wreak
havoc with the finances of ordinary Chinese.

In a move seen as an attempt to restore confidence, China Securities Regulatory
Commission (CSRC) has approved four new funds that want to invest in Chinese
stocks, earlier report said. Each of the funds would be allowed to raise as much
as $1.3 billion for investment in Chinese shares.

"The approval of new funds has sent out a clear signal," said Galaxy
Securities chief fund analyst Hu Lifeng, adding controlling the issuance speeds
of new fund is an effective measure to adjust capital supply in the market.

When the market is in a downturn, regulators can increase the supply of new
funds to hike capital inflow, which in turn stabilize prices and boost market
confidence, Hu explained.

As another move to return stability to the market, the CSRC has asked the
funds in the country not to engage in rapid buying and selling, but to stick to
the principle of value investment.

Tuesday marked the fourth sharp downturn in five sessions since the Ministry
of Finance announced the tripling of the stamp tax on stock trading to 0.3
percent last Tuesday night.

The index has lost more than 19 percent from a record high reached May 29,
before the duty hike.

Unlike in late February when a nine percent fall in Shanghai sparked a global
sell-off, other equity markets ignored the latest turbulence. Shares in Tokyo
and Hong Kong closed up on Monday. Stock prices in Europe were modestly lower
and in New York, a little higher.

Chinese analysts said this indicates foreign investors have learned how to
deal with turmoil in China stocks -- the mainland stock market is isolated from
global markets and a downturn is unlikely to cause a wider economic impact.